BASF achieves top results in 2011 and has ambitious targets for 2012

Full year 2011:

       - Sales €73.5 billion (plus 15%)

        - EBIT before special items €8.4 billion (plus 4%)

        - Earnings per share €6.74 (plus 36%)

•4th quarter 2011:

        - Sales €18.1 billion (plus 10%)

        - EBIT before special items €1.5 billion (minus 14%)

•Dividend proposal: €2.50 (previous year €2.20)

•Outlook 2012: Increase in sales and earnings targeted in challenging environment

BASF significantly surpassed the record levels of 2010 in sales and earnings, and thus again earned a high premium on its cost of capital in 2011. Compared with 2010, sales increased by 15% to €73.5 billion. All regions contributed to this increase. Income from operations (EBIT) before special items improved by 4% to €8.4 billion and EBIT increased almost 11% to €8.6 billion.

At the Annual Press Conference, Dr. Kurt Bock, Chairman of the Board of Executive Directors of BASF said: “2011 was another very successful year for BASF. Thus we are continuing our ambitious dividend policy and will, therefore, again propose a higher dividend of €2.50 at the Annual Meeting. This is an increase of €0.30 or 13.6% compared with the previous year.”

At around €18.1 billion, sales in the fourth quarter of 2011 were higher than in the fourth quarter of 2010, as well as in the third quarter of 2011. However, the slowing of the economy over the course of the year was reflected in the EBIT before special items, which at €1.5 billion was 14% below the fourth quarter of 2010. The trend that the company observed at the beginning of the second half of the year continued. Customers were more cautious in their ordering, reduced their inventories and put off orders in expectation that the economy would decline and prices could possibly soften.

Chief Financial Officer Dr. Hans-Ulrich Engel highlighted the strong cash flow from operating activities. “At €7.1 billion, our operating cash flow exceeded the high level of the previous year once again,” he said. Higher net income contributed significantly to this. The expansion of business and higher prices led to an increase of the funds tied up in net working capital.

Payments related to property, plant and equipment and intangible assets (capex) of €3.4 billion were €862 million above the previous year’s level. Important capital expenditures that started operations in 2011 include the expansion of the company’s site in Nanjing, China; the construction of a methylamines plant in Geismar, Louisiana; the construction of an oleum plant in Antwerp, Belgium; as well as the extension of its European natural gas pipeline system.

Outlook for the year 2012

BASF’s outlook for 2012 is based on the following economic conditions:

•Global economic growth at the previous year’s level (plus 2.7%)

•Solid growth in global chemical production, excluding pharmaceuticals (plus 4.1%)

•An average exchange rate of $1.30 per euro

•An average oil price (Brent) of $110 per barrel

Bock said: “We expect the global economy to pick up speed over the course of 2012 following a moderate start. Uncertainties due to the sovereign debt crises, in particular in Europe and the United States, will dampen growth prospects. Positive impetus for the chemical industry will again mainly come from the emerging markets.”

Excluding the effects of acquisitions and divestitures, BASF wants to increase sales volumes. The company aims to exceed the 2011 record levels in sales and EBIT before special items. Earnings will be supported by the resumption of crude oil production in Libya, as well as growing volumes in the chemicals business.

BASF plans to increase its global research and development expenditures to €1.7 billion in 2012 (2011: €1.6 billion).

“We aim to earn a high premium on our cost of capital once again in 2012. In the first half of 2012, we will likely not achieve the high levels of the first two quarters of the previous year. For the second half, we expect to surpass the levels of the same period of the previous year,” said Bock.

Sales growth in almost all segments in 4th quarter

In Chemicals, price increases in all divisions led to higher sales in the fourth quarter of 2011. In addition, the transfer of the styrenics business to the Styrolution joint venture contributed positively because ethylene sales to the joint venture have been reported as third-party sales since October 1, 2011. Due to weaker demand and ongoing high raw material prices, EBIT before special items was lower than in the fourth quarter of 2010. For the full year 2011, sales in Chemicals rose by 14% to around €13 billion and EBIT before special items grew 6% to reach a new high of €2.4 billion.

Despite lower volumes in major product lines, sales in Plastics increased in the fourth quarter of 2011 due to higher prices primarily in the Performance Polymers division. In engineering plastics, higher demand in North America, mainly from the automotive industry, compensated for lower volumes in Europe and Asia. EBIT before special items declined considerably due to lower margins as a result of weak demand and increased raw material costs, especially for TDI. For the full year 2011, sales in Plastics rose by 12% to around €11 billion while EBIT before special items of €1.2 billion was below the high level of the previous year.

The Performance Products segment posted a 19% rise in sales compared with the same quarter of the previous year. The inclusion of the Cognis businesses and price increases across all divisions contributed to this growth. Volumes declined by 6%, particularly in the Paper Chemicals and Performance Chemicals divisions. EBIT before special items declined by 25% due to expenses related to the integration of Cognis and margin pressure due to intense competition. For the full year, sales of the Performance Products segment increased by 28% to €15.7 billion. EBIT before special items reached €1.7 billion, an increase of 11%.

Volumes in the Functional Solutions segment were up 6% driven by growing demand from the automotive industry for mobile emissions catalysts and automotive coatings. Demand from the construction industry increased slightly, primarily due to increased building activity in North America and the growing markets in Asia. Sales increased by 12% in the fourth quarter compared with the same period of the previous year. EBIT before special items more than doubled due to the strong business in Catalysts and Coatings. For the full year 2011, sales in Functional Solutions rose by 17% to €11.4 billion and EBIT before special items was up 20% to €559 million.

In Agricultural Solutions, sales declined slightly in the fourth quarter compared with the same period of the previous year. This was due to portfolio optimization measures and pre-buying by customers in the third quarter in South America. Regionally, sales in Europe were driven by positive year-end business in France. In North America, sales were up due to higher fungicide sales. EBIT before special items in the fourth quarter almost matched the prior year’s level, despite an increase in R&D spending and selling costs. For the full year 2011, sales in Agricultural Solutions rose by 3% to €4.2 billion and EBIT before special items was up 8% at €810 million.

In Oil & Gas, sales increased by 33%, driven by higher sales volumes in Natural Gas Trading and higher prices in both business sectors. In Libya, the onshore oil production restarted in mid-October with 20,000 barrels per day, and reached 60,000 barrels per day at the end of the year. EBIT before special items for the Oil & Gas segment declined by 4% in the fourth quarter of 2011 due to lower production levels in Libya compared with the previous year. The higher crude oil price partially compensated for the lower production volumes. For the full year 2011, sales in the Oil & Gas segment rose 12% to €12.1 billion. EBIT before special items decreased by 13% to €2.1 billion.

Sales in Other fell by 30%, mainly due to the transfer of the styrenics activities to the joint venture Styrolution as of October 1, 2011. BASF’s share in the joint venture is included at equity in the financial statements. The styrenics business, therefore, only contributed to the sales and earnings of Other for the first nine months of 2011. EBIT before special items increased in the fourth quarter by €128 million. Positive special items resulted primarily from the disposal gain of the styrenics business of €593 million. In 2011, sales in Other increased to €6.3 billion. EBIT before special items improved from minus €648 million to minus   €404 million; EBIT rose from minus €707 million to €178 million due to higher positive special items.